DoL: HSA Trustees Can Offer Signup Incentives

December 30, 2004 (PLANSPONSOR.com) - The US
Department of Labor (DoL) has issued an advisory opinion
asserting that cash incentives offered by a trustee/custodian
of a health saving account (HSA) are not prohibited
transactions under federal law.

According to an EBIA report, the opinion was
requested by an insurer that offers various health
benefit plans including high deductible health plans
(HDHPs) in the individual and group markets.

The DoL opinion covered two scenarios including one
for group plans, EBIA said:

The insurer contracts with an unrelated bank to
provide HSAs for those covered by HDHPs issued by the
insurer in the group market, with the bank receiving
compensation from the insurer for its services as
trustee or custodian and recordkeeper. The bank gives
customers a $100 HSA contribution if they establish
an HSA with the bank when the insurer first covers
them under a group HDHP.

In the opinion, the DoL noted that the Internal
Revenue Service (IRS) Code Section 223 did not prohibit
the insurer or bank from making cash contributions to its
customers’ HSAs and that IRS guidance expressly provides
that any person may make contributions to an HSA on an
eligible individual’s behalf.

The DoL then determined that, although the insurer
and bank were “disqualified persons” under the IRS Code’s
prohibited transaction rules when acting as a trustee or
custodian, the making of a cash contribution by the
insurer or bank was not barred under Code Section
4975(c)(1).

Not only that, the DoL said, but the HSA account
holder would not be engaging in prohibited self-dealing
because the contribution would go to the HSA and not
directly to the account holder. The DoL also indicated that
the same analysis would apply under
the Employee Retirement Income Security Act’s
(ERISA) prohibited transaction rules to HSAs that are ERISA
plans under
Field Assistance Bulletin 2004-01
.